Effects of changes in government spending

    The New York Times writer Michael Strain wrote an essay against the Biden administration and the Democratic Party’s push for a $4 trillion government spending packet because economic measurements (i.e. CPI, inflation) suggest there will be a negative effect on the U.S. economy. Strain argues increasing inflation while there is high demand and low supplies would hurt the economy.

    Strain found inflation, measured by both the CPI and the Federal Reserve’s work, to be significantly higher than the year before (2021). This is an interesting point, considering The Economist published an article providing an alternative inflation calculation (using the personal consumption expenditures data and the trimmed-mean rate) that produced a lower inflation figure (roughly 2%)(2021). Jerome Powell argues that “price pressures are not broad-based”, meaning we have a low comparison year (the year before the pandemic) that is making this year’s inflation look bigger (The Economist 2021).

    For the Biden administration and the Democratic party, Mr. Powell’s argument is good support for a bill to engage in fiscal stimulus. As the Congressional Research Service noted, one way an increased government budget can be spent is through a “transfer of funds to individuals” who, in theory, would turn around and spend that money and boost economic growth (2021). As our analysis has found, doomsday inflation is not a guarantee of the $4 trillion spending packet.

Links:

Consumer price index for all urban consumers: All items in U.S. city average. FRED. (2022, February 10).https://fred.stlouisfed.org/series/CPIAUCSL#0

Fighting trim; Inflation. (2021, September 18). The Economist, 64(US). https://link.gale.com/apps/doc/A675674766/AONE?u=taco36403&sid=bookmark-AONE&xid=a2e5d713 

Strain, Michael R. "Congress: Don't Give Biden $4 Trillion." New York Times, 26 July 2021, p. A18(L). Gale Academic OneFile, link.gale.com/apps/doc/A669616279/AONE?u=taco36403&sid=bookmark-AONE&xid=6ac90356.  Accessed 23 Feb. 2022.

Weinstock, Lida R. “Fiscal Policy: Economic Effects.” Congressional Research Service, 21 January, 2021, https://sgp.fas.org/crs/misc/R45723.pdf